Yahoo earnings better than expected, but revenue down

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This September 12, 2013 photo illustration shows the newly designed Yahoo logo seen on a smartphone. Yahoo has refreshed its logo for the first time since the Internet companys founding 18 years ago. The new look unveiled September 4 is part of a makeover that Yahoo Inc. has been undergoing since the Sunnyvale, California company hired Google executive Marissa Mayer to become Yahoos CEO. AFP PHOTO / Karen BLEIERKAREN BLEIER/AFP/Getty Images

SUNNYVALE — Despite a flurry of new products and acquisitions, Yahoo reported Tuesday that its ad business continued to struggle in the last quarter, as sales declined in its biggest advertising segment.

CEO Marissa Mayer sought to put the best face on Yahoo’s 2013 performance during a conference call with analysts, saying the company saw more Internet visitors and started earning new revenue from ads on mobile devices and Tumblr, the blogging site that Yahoo bought for $1 billion last year.

But she conceded mobile ad revenue is still minimal and declined to issue a financial projection for 2014, saying only that she expects “stable momentum with some modest acceleration in the second half of the year.”

Mayer also acknowledged that her expensive bet on hiring a former top Google executive, Henrique de Castro, had not produced the desired improvement in the company’s ad business.

“Ultimately, Henrique was not a fit,” Mayer said about de Castro, who departed as Yahoo’s chief operating officer this month and will collect an estimated $88 million or more for 15 months on the job.

Yahoo reported $348 million in profit for the quarter ending Dec. 31, up 28 percent from a year earlier. But revenue fell from $1.35 billion to $1.26 billion. After subtracting commissions to ad partners, revenue was down 2 percent at $1.2 billion — the latest of several declines over the last three years.

Revenue from display advertising fell 6 percent to $491 million minus commissions, although revenue from search advertising rose 8 percent to $461 million on the same basis.

Yahoo was overtaken by Facebook as the No. 2 seller of online ads in the United States last year, according to eMarketer, while industry leader Google also increased its business. Analysts say Yahoo lags behind its rivals in offering sophisticated targeting, analytics and automated buying tools for advertisers.

Mayer announced new ad programs and buying tools earlier this month, however. She said Tuesday that she won’t replace de Castro and will become “much more involved” in the company’s ad business.

Yahoo shares closed Tuesday at $38.22 and fell 2.4 percent in late trading after the company also disclosed a modest slowing of sales growth at Alibaba, the Chinese e-commerce site in which Yahoo owns a 24 percent stake. But analyst Brian Wieser at Pivotal Research cautioned against reading too much into those numbers since they’re from the third quarter, and Alibaba hasn’t released other details.

Meanwhile, analyst Carlos Kirjner of Bernstein Research said in a recent report: “We are skeptical we will see a material turnaround of Yahoo’s display (advertising) business in the next few quarters.”